TCS shares swing into loss as rupee, US visa concerns Trump optimism; further downside seen

TCS shares swing into loss as rupee, US visa concerns Trump optimism; further downside seen

Tata Consultancy Services shares gave up early morning gains and fell sharply as concerns over weak earnings and doubts over the company’s future outlook overpowered the optimistic operating margin guidance given out by the information technology major yesterday.

TCS said it does not need to moderate its aspirational target of 26-28% operating margin. (Image: Reuters)

Tata Consultancy Services shares gave up early morning gains and fell sharply as concerns over weak earnings and doubts over the company’s future outlook overpowered the optimistic operating margin guidance given out by the information technology major yesterday.

TCS shares were trading down 1.16% at Rs 2,281.8 on BSE, after rising as much as 1.73% today morning. The key indices were marginally lower, with the benchmark BSE Sensex down 0.14% at 29278.88 points, while the NSE Nifty down 0.17% at 9089.7 points.

Earlier yesterday, Tata Consultancy Services said its fiscal fourth quarter net profit fell 2.5% on-quarter to Rs 6,608 crore from Rs 6,778 crore in the previous quarter, broadly in line with expectations. The company disappointed on operating margin front, with the fourth quarter EBIT margin reported at 25.73% in the quarter ending March 31, falling from 26% in the quarter ending December 31.

Although, TCS said it continues to be optimistic on achieving an operating margin of 26-28% in the new fiscal year 2017-18, riding on recovery in its largest business segment. “We continue to see strong traction in BFSI (Banking, Financial Services, Insurance), and expect it to bounce back strongly, as we go forward into the next quarter,” TCS CEO Rajesh Gopinathan said.

However, some analysts don’t seem to be fully-convinced. Morgan Stanley warned that concerns remain about the outlook given by the company due to stronger rupee and the US visa changes.

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Indian rupee has jumped vs the US dollar recently, hurting the earnings of Indian IT exporters. With a 4.3% appreciation in the last seven weeks, rupee has become the best performing Asian currency during the period. Further, the US President Donald Trump on Wednesday signed an executive order which calls for a review of the H-1B visa programme, which is widely used by Indian IT firms to send its employees to the US to work alongside the clients.

Morgan Stanley has downgraded the stock to ‘underweight’ from ‘equal-weight’, cutting the price target on it to Rs 2,100 from Rs 2,300. Morgan Stanley’s revised price target implies a downside of about 8-9% from the current price. This is in contrast to the research and brokerage firm Angel Broking, which said it maintains ‘buy’ rating on the stock with a target price of Rs 2,700, implying more than 16% upside from the current price.

According to Reuters data, out of the 51 brokerages covering the stock, 15 rate it at ‘buy’ or higher, 25 rate it at ‘hold’ and 11 rate it at ‘sell’ or lower, with their median price target at Rs 2,470.